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Walgreens to slow expansion
DEERFIELD, Ill. — Walgreen Co. plans to reduce its organic store growth rate beginning in September to provide greater support for its diversified health care services.
The retailer intends to cut its store expansion rate from nearly 9% in fiscal 2008 (ending August 31) to a goal of about 6% in fiscal 2010 and 5% beginning in fiscal 2011. Previously, the company had planned a long-term store growth rate of 8%.
New store openings already in the pipeline are expected to result in around 8% organic growth in fiscal 2009.
The chain will open more than 500 new organic stores (after relocations and closings) this fiscal year. Its planned future expansion rates translate into debuts of about 495 net new stores in fiscal 2009, 425 in fiscal 2010 and 365 in fiscal 2011. The new targets resulted from the company’s regular review of its growth and capital expenditure plans. By moderating growth, Walgreens expects to reduce capital expenditures by about $500 million over the next three fiscal years.
All the store figures exclude potential acquisitions.
“This move allows us to improve return on invested capital and overall shareholder value,” says chairman and chief executive officer Jeff Rein. “It also gives us the flexibility to invest in our core strategies.”
The 6,300-unit chain has opened more than 1,100 net new organic stores in the past three years and continues to see strong performance from its store-opening program. “We’ve maintained our standards for new store site selection, and these locations continue to perform well for us,” says Rein.
The announcement follows the company’s creation this year of the Walgreens Health and Wellness division, formed in part by the acquisition of two operators of work site health centers. The division will foster health care at job sites and at Take Care Health Clinics in Walgreens stores.
The retailer has also significantly expanded its specialty pharmacy business for infertility, cancer, AIDS and other expensive-to-treat conditions.
Diversification and a store growth slowdown notwithstanding, Walgreens remains on track to have more than 7,000 stores by 2010.
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